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Florida Agency for Health Care Administration DRG Payment Implementation Project Overview August 2, 2012 Presentation by MGT of America, Inc. and Navigant Consulting, Inc.
Florida Agency for Health Care
Administration
DRG Payment Implementation
Project Overview
August 2, 2012
Presentation by MGT of America, Inc. and
Navigant Consulting, Inc.
Meeting Agenda
Page 2
Agenda Topic Time
Introductions 9:00 – 9:15
Background 9:15 – 9:20
Project Overview 9:20 – 9:40
Typical DRG Pricing Formula 9:40 – 9:55
Overview of DRG Groupers 9:55 – 10:10
Key Payment Design Considerations 10:10 – 10:30
Stakeholder Input/Questions/Discussion 10:30 – 11:50
Wrap-Up 11:50 – 12:00
Background
Background Discussion by AHCA
Page 4
Discussion of Legislation
Timing of Implementation
Discussion of Stakeholder Process
Timing of Public Meetings
Section 409.905(5)(f), Florida Statutes
as amended by House Bill 5301, 2012 session
5
The agency shall develop a plan to convert Medicaid inpatient hospital
rates to a prospective payment system that categorizes each case into
diagnosis-related groups (DRG) and assigns a payment weight based on
the average resources used to treat Medicaid patients in that DRG. To the
extent possible, the agency shall propose an adaptation of an existing
prospective payment system, such as the one used by Medicare, and
shall propose such adjustments as are necessary for the Medicaid
population and to maintain budget neutrality for inpatient hospital
expenditures.
Page 5
Section 409.905(5)(f), continued
1. The plan must:
a. Define and describe DRGs for inpatient hospital care specific to
Medicaid in this state;
b. Determine the use of resources needed for each DRG;
c. Apply current statewide levels of funding to DRGs based on the
associated resource value of DRGs. Current statewide funding levels
shall be calculated both with and without the use of intergovernmental
transfers;
d. Calculate the current number of services provided in the Medicaid
program based on DRGs defined under this subparagraph; and
e. Estimate the number of cases in each DRG for future years based on
agency data and the official workload estimates of the Social Services
Estimating Conference;
6 Page 6
Section 409.905(5)(f), continued
f. Calculate the expected total Medicaid payments in the current year for
each hospital with a Medicaid provider agreement, based on the DRGs
and estimated workload;
g. Propose supplemental DRG payments to augment hospital
reimbursements based on patient acuity and individual hospital
characteristics, including classification as a children’s hospital, rural
hospital, trauma center, burn unit, and other characteristics that could
warrant higher reimbursements, while maintaining budget neutrality; and
h. Estimate potential funding for each hospital with a Medicaid provider
agreement for DRGs defined pursuant to this subparagraph and
supplemental DRG payments using current funding levels, calculated
both with and without the use of intergovernmental transfers.
Page 7
Section 409.905(5)(f), continued
2. The agency shall engage a consultant with expertise and experience in the
implementation of DRG systems for hospital reimbursement to develop the
DRG plan under subparagraph 1.
3. The agency shall submit the Medicaid DRG plan, identifying all steps
necessary for the transition and any costs associated with plan
implementation, to the Governor, the President of the Senate, and the
Speaker of the House of Representatives no later than January 1, 2013. The
plan shall include a timeline necessary to complete full implementation by
July 1, 2013.If, during implementation of this paragraph, the agency
determines that these timeframes might not be achievable, the agency shall
report to the Legislative Budget Commission the status of its implementation
efforts, the reasons the timeframes might not be achievable, and proposals
for new timeframes.
Page 8
Project Overview
Project Overview
Overview of Design Framework
Page 10
Identify System Component Options – Consideration of Best Practices
• Base Rates / Conversion Factors
• Relative Weights
• Treatment of Outlier Cases
• Other System Components
Select System Components Based on Evaluation
• “Qualitative” Evaluation
• Considers AHCA Proposed Evaluation Criteria and Other Factors
• Identification of Best Options
Simulate Payments Using Comprehensive and Recent Paid Claim and Encounter Data
• “Quantitative Evaluation
• Compare Simulated Payments to Legacy Payments and to Cost
• By Provider, by Service Line, and in Aggregate
Finalize System Recommendations
• Base Rates / Conversion Factors
• Relative Weights
• Treatment of Outlier Cases
• Other Components
Stakeholder Input is Key to Successful Design Process
Project Overview
Key Project Steps
Page 11
Step 1: Develop Guiding Principles for Evaluating Options
Step 2: Research and Determine Optimal DRG Model
Step 3: Identify and Evaluate Other Payment System Components
Step 4: Develop Conceptual Design and Documentation
Project Overview
Key Project Steps
Page 12
Step 5: Prepare Inpatient Claims and Encounter Datasets for Analyses
Step 6: Create Dataset of Necessary Medicare Rate Components
Step 7: Estimate the Costs of Services, Claim by Claim, including Capital, Operating, Other
Step 8: Determine DRG Relative Weights
Project Overview
Key Project Steps
Page 13
Step 9: Develop Payment Simulation Model
Step 10: Determine DRG Base Prices
Step 11: Determine Targeted Policy Adjustors, as Necessary, Based on Simulation Model Results
Step 12: Adjust System Parameters, as Necessary, Based on Simulation Model Results
Project Overview
Evaluating the Options
Page 14
Guiding Principles for Evaluating Options
Efficiency Is the option aligned with incentives for providing efficient care?
Access Does the option promote access to quality care, consistent with federal requirements?
Equity Does the option promote equity of payment through appropriate recognition of resourse intensity and other factors?
Predictability Does the option provide predictable and transparent payment for providers and the State?
Transparency and Simplicity
Does the option enhance transparency, and contribute to an overall methodology that is easy to understand and replicate?
Quality Does the option promote and reward high value, quality-driven healthcare services?
Project Overview
Other Design Considerations
Page 15
Other Design Considerations
Budget Neutrality
Funding is not unlimited – goal for design is to be budget neutral.
Adaptability Does the option promote adaptability for future changes in utilization and the need for regular updates?
Forward Compatibility
Is the option flexible enough to support payment structures in anticipated future service models?
Policy Is the option consistent with State and Federal policy priorities?
Typical DRG Pricing Formula
Typical DRG Pricing Formula
DRG Base Payment
Page 17
DRG Base
Payment
Outlier Payment
(If claim
qualifies)
Claim Payment + =
DRG
Base
Payment
DRG Relative
Weight
DRG
Base
Rate x = x
Optional
Policy
Adjustment
Factors
Note: DRG base payment is sometimes reduced on transfer and partial eligibility claims.
Outlier
Payment
(if claim
qualifies) = Outlier
Threshold
Marginal
Cost Factor
Estimated
Hospital
Loss x - ( )
DRG
Base
Payment
Outlier
Payment
(If claim
qualifies)
Claim
Payment + =
Typical DRG Pricing Formula
Outlier Payment
Page 18
Note: Outlier payments are only applied if hospital loss (or potentially hospital gain) is greater than the outlier threshold.
Typical DRG Pricing Formula
Examples
Page 19
= ([Est Hosp Loss] - [Outlier Thrshld]) * [Marg Cost Factor]
DRG
Hospital
Base Rate
DRG
Relative
Weight
Policy
Adjustment
Factor
DRG Base
Payment
Estimated
Hospital
Cost
Estimated
Hospital
Loss
Outlier
Payment
Final DRG
Payment
123-4 $5,000 0.40 1.00 $2,000 $2,500 $500 $0 $2,000
432-1 $5,000 2.25 1.25 $14,063 $12,000 $0 $0 $14,063
678-4 $5,000 9.50 1.00 $47,500 $80,000 $32,500 $5,250 $52,750
Notes:
- Examples for illustration purposes only
- Assuming outlier cost threshold equal to $25,000
- Assuming outlier mariginal cost percentage equal to 70%
= [Hosp Base Rt] * [DRG Rel Wt] * [Policy Adj Factor]
= [Est Hosp Cost] - [DRG Base Pymt]
= [DRG Base Pymt] + [Outlier Pymt]
Overview of DRG Groupers
Overview of DRG Groupers
Comparison of State Medicaid Programs
Page 21
APR-DRGs
MS-DRGs
*
*
*
CMS-DRGs
AP or Tricare DRGs
Per Stay/Per Diem/Cost
Reimbursement/Other
*
* **
* Indicates Moving Toward
** Indicates Under Consideration
* **
*
Overview of DRG Groupers
Comparison of Top Three Options
Page 22
Source: Quinn, K, Courts, C. Sound Practices in Medicaid Payment for Hospital Care. CHCS: November 2010, updated with current
information by Navigant.
Description MS-DRGs V.29
(CMS - Maintained by 3M)
APR-DRGs V.29
(3M and NACHRI)
APS-DRGs V.29
(OptumInsight, fmr Ingenix)
Intended Population Medicare (age 65+ or under age 65
with disability)
All patient (based on the
Nationwide Inpatient Sample)
All patient (based on the
Nationwide Inpatient Sample)
Overall approach and
treatment of
complications and
comorbidities (CCs)
Intended for use in Medicare
Population. Includes 335 base
DRGs, initially separated by
severity into “no CC”, “with CC” or
“with major CC”. Low volume
DRGs were then combined.
Structure unrelated to Medicare.
Includes 314 base DRGs, each
with four severity levels. The is
no CC or major CC list; instead,
severity depends on the number
and interaction of CCs.
Structure based on MS-DRGs
but adapted to be suitable for
an all-patient population.
Includes 407 base DRGs, each
with three severity levels.
Same CC and major CC list as
MS-DRGs.
Number of DRGs 746 1,256 1,223
Newborn DRGs 7 DRGs, no use of birth weight 28 base DRGs, each with four
levels of severity (total 112)
9 base DRGs, each with three
levels of severity, based in part
on birth weight (total 27)
Overview of DRG Groupers
Comparison of Top Three Options
Page 23
Description MS-DRGs V.29
(CMS - Maintained by 3M)
APR-DRGs V.29
(3M and NACHRI)
APS-DRGs V.29
(OptumInsight, fmr Ingenix)
Psychiatric DRGs 9 DRGs; most stays group to
“psychoses”
24 DRGs, each with four levels of
severity (total 96)
10 base DRGs, each with three
levels of severity (total 30)
Payment Use by
Medicaid
MI, NH, NM, OK, OR, SD, TX,
WI
AZ, CA, CO, IL, MA, MD, MT, MS,
ND, NY, PA, RI, SC, TX
Under consideration in numerous
other states
None
Payment use by other
payers Commercial plan use BCBSMA, BCBSTN Commercial plan use
Other users Medicare, hospitals Hospitals, AHRQ, MedPAC, JCAHO,
various state “report cards”
Hospitals, AHRQ, various state
“report cards”
Uses in measuring
hospital quality
Used as a risk adjustor in
measuring readmissions. Used
to reduce payment for hospital-
acquired conditions.
Used as risk adjustor in measuring
mortality, readmissions,
complications. Can also be used to
reduce payment for hospital-
acquired conditions.
Used as risk adjustor in
measuring mortality and
readmissions and to reduce
payment for hospital-acquired
conditions
Source: Quinn, K, Courts, C. Sound Practices in Medicaid Payment for Hospital Care. CHCS: November 2010, updated with current
information by Navigant.
Overview of DRG Groupers
MS-DRG Applicability in Medicaid
Designed for classification of Medicare patients …
Source: CMS, “Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal
Year 2008 Rates; Final Rule,” Federal Register 72:162 (Aug. 22, 2007): 47158
Page 24
“The MS-DRGs were specifically designed for purposes of Medicare
hospital inpatient services payment… We simply do not have enough
data to establish stable and reliable DRGs and relative weights to
address the needs of non-Medicare payers for pediatric, newborn, and
maternity patients. For this reason, we encourage those who want to
use MS-DRGs for patient populations other than Medicare [to] make
the relevant refinements to our system so it better serves the needs of
those patients.”
Overview of DRG Groupers
Benefits of APR-DRGs
Page 25
Benefits of
Migrating
to APR-DRGs
Facilitates Measurement of
Potentially Preventable
Readmissions and Complications
Enhances Recognition of Acuity
Related to Specialty Hospitals,
Including Children’s and Teaching
Hospitals
Enhances Recognition of
Resources Necessary for High
Severity Patients
Reduces Occurrences of Outlier
Cases
Incorporates Age into
Classification Process – Critical
for Neonatal Cases
Enhances Homogeneity
of Classifications – Superior
Measurement of Resources
Key Payment Design
Considerations
Key Payment Design Considerations
Pricing Formula
Page 27
Design Consideration Options/Comments
Base Rates / Base Prices
• Statewide Standardized Amount (with or
without adjustments)
Adjust for wage differences?
• Peer Group (with or without adjustments)
• Hospital Specific
DRG Relative Weights • Adopt national weights
• Calculate State-specific weights
Targeted Policy Adjustors
• Potential adjustors for:
Targeted service lines
Specific age groups
Targeted hospitals
Outlier Payment Policy • Adopt “Medicare-like” model
• Incorporate “low-resource” outlier policy
Key Payment Design Considerations
Sample Relative Weight Comparison
Page 28
y = 0.9627x - 0.0042
R² = 0.9579
0.0000
0.5000
1.0000
1.5000
2.0000
2.5000
3.0000
3.5000
4.0000
0.0000 0.5000 1.0000 1.5000 2.0000 2.5000 3.0000 3.5000 4.0000
3M R
elat
ive
Wei
gh
t A
dju
sted
fo
r C
ase
Mix
Top 50 Illinois Medicaid APR-DRGs By Total Claim Volume
(Based on SFY 2009 Inpatient Claim Cost With Provider Tax)
Relative Weight Comparison
Illinois-Specific Relative Weights
Key Payment Design Considerations
Pricing Formula
Page 29
Design Consideration Options/Comments
Transfer Payment Policy • Adopt “Medicare-like” model
• Incorporate Medicare post-acute transfer
policy?
Partial Eligibility • Similar to transfer calculations
Charge Cap • Include or exclude?
Interim Claims
• Allow or disallow
• If allowed –
Payment amount
Minimum length-of-stay
Key Payment Design Considerations
Implementation Considerations
Page 30
Design Consideration Options/Comments
Adjustment for Expected Coding
and Documentation Improvements
• Expected and appropriate response
• Need strategy to mitigate risk to State and to
providers
Transition Period • Time Frame
• Method of integration
Establishing Budget Neutrality • Establishing targeted expenditures
• Adjustments for inflation and utilization
trends
Payment Adjustments for Differing
Provider Cost Structures
• Rural hospitals
• Teaching hospitals
• High Medicaid volume hospitals
ICD-10 Compatibility • DRG model must be compatible
• Need strategy to mitigate risk to State and to
providers
Key Payment Design Considerations
Payment Outside of DRG Method?
Page 31
Design Consideration Options/Comments
Payment for Specialty Services
(Psychiatric, Rehabilitation, Other)
• Include in DRG payment method?
• Establish separate payment policies (i.e.,
per diem)
Adjust for Acuity
Graduate based on length-of-stay
(Medicare model)
Stakeholder Input
Stakeholder Input
Process
Page 33
AHCA
Final Design Decisions
Consultants
Providers
Plans
Community Forum
System
Implementation
Stakeholder Input
Contact Information
Page 34
Tom Wallace, Bureau Chief Medicaid Program Finance
Florida Agency for Health Care Administration (850) 412-4101 (Office)
(850) 414-9789 (Fax) [email protected]
Questions and Discussion
